• Net Sales and Revenues: Down 30% to $8.508 billion.
• Equipment Operations Net Sales: Down 35% to $6.809 billion.
• Net Income: $869 million, or $3.19 per diluted share, including $163 million of discrete tax benefits.
• Production and Precision Ag Net Sales: Down 37% to $3.067 billion.
• Production and Precision Ag Operating Margin: 11%.
• Small Ag and Turf Net Sales: Down 28% to $1.748 billion.
• Small Ag and Turf Operating Margin: 7.1%.
• Construction and Forestry Net Sales: Down 38% to $1.994 billion.
• Construction and Forestry Operating Margin: 3.3%.
• Worldwide Financial Services Net Income: $230 million.
• Fiscal Year 2025 Net Income Guidance: Between $5 billion and $5.5 billion.
• Effective Tax Rate Guidance: Between 20% and 22%.
• Operating Cash Flow Guidance: Between $4.5 billion and $5.5 billion.

• Warning! GuruFocus has detected 7 Warning Sign with DE.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Deere & Co (NYSE:DE) maintained its full-year net income guidance despite a challenging quarter, reflecting strong cost management and operational efficiency.
• The company saw positive price realization in its Production and Precision Ag segment, contributing to an 11% operating margin.
• Deere & Co (NYSE:DE) reported strong progress in reducing field inventory levels, particularly in Brazil, where combine inventory decreased significantly.
• The company is experiencing increased adoption of its Precision Ag technology, with strong customer interest in Brazil for its JDLink Boost and Precision Ag Essentials kits.
• Deere & Co (NYSE:DE) returned over $800 million in cash to shareholders through dividends and share repurchases during the quarter, demonstrating a commitment to shareholder value.

Negative Points

• Net sales and revenues for the first quarter were down 30% year-over-year, with equipment operations sales declining by 35%.
• The Construction and Forestry segment experienced a 38% decline in net sales due to lower shipment volumes and unfavorable price realization.
• Currency fluctuations negatively impacted net sales and operating profit, particularly in the Production and Precision Ag segment.
• High interest rates and macroeconomic uncertainty continue to weigh on equipment demand, particularly in North America.
• The company faces challenges in managing used equipment inventory, especially in high-horsepower tractors, which remain above desired levels.

Q & A Highlights

Q: Can you provide insights into the Large Ag production cadence given the pushout in the first quarter? A: Josh Beal, Director of Investor Relations, explained that despite the pushout, Large Ag demand will follow normal seasonality. The second quarter is expected to be the highest in terms of sales, with a full-year guide for Large Ag being down 15% to 20%. The second quarter will likely be down more than the full-year guide, with improvements expected in the third and fourth quarters.

Q: How confident are you in the bottoming process for end market activity, given the weak early order program results? A: Josh Rohleder, Manager of Investor Communications, noted that while the combine early order program was slower, it typically represents over 90% of annual builds, providing good visibility. Joshua Jepsen, CFO, added that used combine inventories have been managed down, indicating progress in addressing inventory challenges.

Q: Can you update us on the progress and expectations for Precision Ag globally, particularly in Brazil? A: Josh Beal highlighted strong adoption of Precision Ag Essentials in Brazil, with over 1,500 orders year-to-date. The introduction of Starlink-enabled JDLink Boost has seen significant uptake, enhancing connectivity. Globally, engaged acres have grown by 15%, with highly engaged acres up over 30%.

Q: What is Deere's view on farmer profitability and demand, especially for large professional farmers? A: Josh Beal emphasized that profitability varies based on factors like land ownership and technology use. Recent improvements in commodity prices and government support have positively impacted fundamentals. Joshua Jepsen added that global consumption is outpacing supply, creating a favorable setup despite macro uncertainties.

Q: How is Deere managing used inventory levels, and what is the outlook for reducing excess inventory? A: Josh Beal stated that while progress has been made, particularly with combines, high-horsepower tractors still require attention. The focus is on improving the mix of used equipment, with expectations for continued reductions over several quarters. Joshua Jepsen noted that aging fleet demographics will aid in managing used inventory.

Q: What are the expectations for price realization in the Production and Precision Ag (PPA) and Construction and Forestry segments? A: Josh Beal confirmed a 1% price realization guide for PPA, incorporating incentives to support the used market. In Construction and Forestry, price pressure led to a revised flat guide for the year, with expectations for improvement as the year progresses.

Q: How does Deere plan to achieve its full-year margin guidance across segments? A: Josh Beal explained that Large Ag will follow normal seasonality, with the second quarter expected to be the strongest. Construction and Forestry will see sequential margin improvements due to underproduction in the first half. Joshua Jepsen added that margins will strengthen in the second and third quarters.

Q: How will the recent farmer support package impact equipment demand? A: Joshua Jepsen indicated that while the support package may shore up balance sheets and aid used inventory movement, it is unlikely to drive immediate new equipment demand in 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.